Twenty industry associations on Tuesday, ( July 13) issued an urgent call on government to repeal Bureau of Internal Revenue Regulation 9-2021 that implements 12 percent value added tax (VAT) on exporters’ domestic purchases and indirect exports as this further erodes the competitiveness of the Philippines and potentially cause an exodus of foreign investors.

Already, the Semiconductor and Semiconductor Industries in the Philippines Foundation Inc (SEIPI) placed the initial amount of supplies by its multinational corporation member firms that are being shifted to foreign suppliers at P28 billion.

“This is a conservative estimate of local suppliers who will likely lose the business when the MNC's source from foreign suppliers,” said Lachica at the joint virtual press conference call by the industry associations.

Aside from the shift of these supply volumes to foreign suppliers, Lachica said this will also mean reduction in income to local suppliers and as much as 50,000 displaced workers.

Francisco Zaldarriaga, president of the Philippine Ecozones Association (PHILEA) even raised the timing of the RR-9-2021, which he said is a “very serious matter” and a “very lethal blow to our economy and timing is way off, why this race to raise funds. Why today, a year from May 2022.”

Maritess Jocson-Agoncillo, executive director of Confederation of Wearable Exporters of the Philippines (CONWEP), said the wearables sector is a very small margin industry and most of their margin comes from the VAT exemption from their purchases on domestic purchases and indirect exports.

Local value added (LVA) for the garment sector accounts for 45 to 50 percent of their total cost. With the VAT exemption on these LVA, the sector can gain its margin from. LVA means local supplies of packaging, zippers, threads, boxes, etc. Indirect exports include services such as washing and embroidery value inputs.

“Our margins are anchored in that inputs,” she added.

“What we see with this RR is we may see an exodus of investors and retain only a very small business here,” she said thus making the RR a ‘game changer” for the wearables sector,.

Last year, the sector laid off over 20,000 within CONWEP group and they now employ 270,000. She said that with the new rules affecting competitiveness, buyers are giving orders to countries with well rounded vaccine program.

Rey Untal, president of the IT Business Process Association of the Philippines (IBAP), said the impact is the lesser number in terms of growth, revenues and jobs.

Despite the pandemic, the industry grew modest last year with $26.7 billion in revenues and 1.32 direct employment. IBPAP members also invest in training and upskilling of workers at 5 to 10 times higher than other sectors.

“This is harmful to business and negative impact of perception of doing business,” Untal said adding that if the intention is to refund the VAT then why collect it in the first place.

Alex Cabrera, chairman emeritus, Isla Lipana & Co./PwC Philippines, questioned the legality of the RR stating that it is not even a law and it contradicts the Philippine Economic Zone Authority law that provides that PEZA operates as a separate customs territory. He stressed that this provision in the PEZA law was not amended in the TRAIN and CREATE laws.

“There are more cost to this policy in terms of attractiveness as a destination and credibility to the country,” he added.

Atty. Michael Montero, APAC Regional General Counsel, Concentrix, said that some MNCs are looking at judicial remedy stressing it is not about revenue issue but more about preserving jobs. He expressed hope that the tax issue can still be resolved without going to court, but if necessary “companies are ready.”

Agoncillo, however, said that she has raised the judicial remedy before CONWEP members but was told that with the kind of margin they have and the fact that they are operating in four or five other countries going to court may not be the track they will take.

RR 9-2021 was supposed to take effect on June 27, 2021, but the BIR and the Department of Finance are said to be coming up with a Revenue Memorandum Circular to be issued today, July 13 or tomorrow July 14.